NAC 680A.002Definitions. (NRS 679B.130, 680A.265, 680A.270)As used
in this chapter, unless the context otherwise requires, the words and terms
defined in NAC 680A.003 to 680A.018,
inclusive, have the meanings ascribed to them in those sections.

(Added to NAC by Comm’r of Insurance, eff. 5-23-96; A
by R205-08, 11-25-2009, eff. 1-1-2010)

1. An independent certified public
accountant or accounting firm in good standing with the American Institute of
Certified Public Accountants and in all states in which the accountant or
accounting firm is licensed to practice.

2. For an insurer domiciled in Canada or
Great Britain, a chartered accountant.

(Added to NAC by Comm’r of Insurance, eff. 5-23-96; A
by R076-02, 9-20-2002)—(Substituted in revision for NAC 680A.006)

1. The report which must be filed with the
Commissioner in accordance with NRS
680A.265.

2. For an insurer domiciled in Canada or
Great Britain, the annual statement of total business on the form filed by the
insurer with its domiciliary supervision authority, duly audited by a chartered
accountant.

(Added to NAC by Comm’r of Insurance, eff. 5-23-96; A
by R076-02, 9-20-2002)

NAC 680A.005“Audit committee” defined. (NRS 679B.130, 680A.265, 680A.270)“Audit
committee” means a committee or equivalent body established by the board of
directors of an entity for the purpose of overseeing the accounting and
financial reporting processes of an insurer or group of insurers and audits of
financial statements of the insurer or group of insurers.

(Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009,
eff. 1-1-2010)

NAC 680A.009“Direct written and assumed premiums” defined. (NRS 679B.130,
680A.265, 680A.270)“Direct
written and assumed premiums” means the combined total of direct premiums from
nonaffiliates for the reporting entities.

(Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009,
eff. 1-1-2010)

NAC 680A.010“Division” defined. (NRS 679B.130)“Division”
means the Division of Insurance of the Department of Business and Industry.

(Added to NAC by Comm’r of Insurance, eff. 5-27-92)

NAC 680A.011“Group of insurers” defined. (NRS 679B.130, 680A.265, 680A.270)“Group
of insurers” means those licensed insurers required to be reported by an
insurance holding corporation pursuant to the provisions of chapter 692C of NRS, or a set of
insurers identified by management for the purpose of assessing the
effectiveness of internal control over financial reporting.

(Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009,
eff. 1-1-2010)

(Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009,
eff. 1-1-2010)

NAC 680A.014“Internal control over financial reporting” defined. (NRS 679B.130,
680A.265, 680A.270)“Internal
control over financial reporting” means a process effected by the board of
directors, management and other personnel of an insurer or other entity and
designed to provide reasonable assurance regarding the reliability of the
financial statements required pursuant to NRS 680A.265 and 680A.270 and the regulations
adopted pursuant thereto, including, without limitation, those policies and
procedures that:

1. Pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of assets;

2. Provide reasonable assurance that
transactions are recorded as necessary to permit preparation of the financial
statements, and that receipts and expenditures are being made only in
accordance with the authorization of management and the board of directors; and

3. Provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of assets that could have a material effect on the financial statements of the
entity.

(Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009,
eff. 1-1-2010)

(Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009,
eff. 1-1-2010)

NAC 680A.016“Section 404 Report” defined. (NRS 679B.130, 680A.265, 680A.270)“Section
404 Report” means the Management’s Report on Internal Control Over Financial
Reporting, as defined by the Securities and Exchange Commission, and the
related attestation report of the independent certified public accountant.

(Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009,
eff. 1-1-2010)

NAC 680A.017“SOX Compliant Entity” defined. (NRS 679B.130, 680A.265, 680A.270)“SOX
Compliant Entity” means an entity that is required to comply with, or
voluntarily complies with, the following provisions of the Sarbanes-Oxley Act
of 2002, Public Law 107-204:

1. The requirements for preapproval pursuant
to 15 U.S.C. § 78j-1(h);

2. The requirements for the independence of
members of the audit committee pursuant to 15 U.S.C. § 78j-1(m)(3); and

3. The requirements for internal control
evaluation and reporting pursuant to 15 U.S.C. § 7262(b).

(Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009,
eff. 1-1-2010)

NAC 680A.018“Workpaper” defined. (NRS 679B.130, 680A.265)“Workpaper”
means the record kept by an independent certified public accountant of the
procedure followed, the test performed, the information obtained and the
conclusion reached pertinent to his or her examination of the financial
statements of an insurer. A workpaper includes, but is not limited to, an audit
planning document, a work program, an analysis, a memorandum, a letter of
confirmation and representation, an abstract of company documents and a
schedule or commentary which are prepared or obtained by the independent
certified public accountant in the course of his or her examination of the
financial statements of an insurer and which support his or her opinion
thereof.

(Added to NAC by Comm’r of Insurance, eff. 5-23-96; A
by R076-02, 9-20-2002)

(a) The provisions of chapter 680A of NRS that govern domestic
insurers, their business, capital and surplus requirements and the requirements
for eligibility for a certificate of authority govern multiple employer welfare
arrangements; and

(b) A multiple employer welfare arrangement must
comply with the criteria set forth in this chapter and chapter 680A of NRS to qualify for a
certificate of authority.

2. As used in this section, “multiple
employer welfare arrangement” has the meaning ascribed to in 29 U.S.C. §
1002(40)(A).

(Added to NAC by Comm’r of Insurance by R087-02, eff. 9-20-2002)

SALES OF INSURANCE THROUGH VENDING MACHINES

NAC 680A.110Conditions. (NRS 679B.130)Insurance
companies licensed to do an insurance business in Nevada may merchandise any
type of insurance permitted by the Division through any type of vending machine
under the following conditions:

1. All policy forms must be filed with, and
approved by, the Commissioner in accordance with the filing procedures for
other policy forms.

2. Reasonable means, as determined by the
Commissioner, must be provided for informing the prospective purchaser of the
coverage and restrictions of the policy.

3. The name of the insurer, the location of
its home office, the name of the responsible producer of insurance appointed by
the insurer and his or her office address, and the serial number of the machine
must be clearly displayed on each machine.

4. Prompt refund of money inserted in a
defective machine and for which no insurance, or a lesser amount than paid for,
must be provided to the applicant or prospective applicant.

5. Vending machines must be constructed and
operated to retain a copy of the application showing the date of application,
name and address of the applicant and of the beneficiary and the amount of
insurance afforded by each policy issued.

6. All machines must be operated under the
supervision of a producer of insurance appointed by the insurer issuing the
policies.

7. Vending machines must be constructed and
operated to affix the facsimile signature of the producer of insurance
appointed by the insurer upon all policies issued therefrom, unless the
producer of insurance appointed by the insurer is on the premises and
personally countersigns them.

NAC 680A.120License; fee. (NRS 679B.130)No
vending machine may be placed in use until an application has been made for a
license for that machine, payment of all applicable fees has been made to the
Division and the license has been issued.

1. The Commissioner may issue a special
vending machine license to the responsible agent. The license will apply to a
specific machine or machines, and specify the name of the insurer and agent and
the serial number or numbers of all machines included under that license.

2. The license is subject to annual
continuation, expiration, suspension or revocation at the same time as the
license of the agent.

3. Proof of the existence of a license for
each vending machine in use may be required by the Commissioner.

[Comm’r of Insurance, M-3 1st par. & subpar. 10,
eff. 5-13-72]

NAC 680A.140Inspection. (NRS 679B.130)Each
licensed agent shall cause each vending machine to be inspected and tested with
reasonable frequency, but not less than once each 7 days. If a machine is not
in good working condition the agent shall cause a notice to be prominently
displayed on the machine indicating that it is out of order. The notice must be
maintained as long as the condition exists.

[Comm’r of Insurance, M-3 1st par. & subpar. 9,
eff. 5-13-72]

NAC 680A.150Rental fees. (NRS 679B.130)The
payment of excessive rental fees for insurance vending machines located in
Nevada may result in withdrawal of approval by the Division of the forms
authorized for use in the machines.

1. Fair and reasonable fees are:

(a) Where the annual premium volume is less than
$50,000, the maximum rental payment may not exceed 13 percent of gross sales.

(b) Where the annual premium volume is between
$50,000 and $100,000, the maximum rental fee payment may not exceed 17 1/2
percent of gross sales.

(c) Where the annual premium volume is in excess of
$100,000, the maximum rental fee payment may not exceed 25 percent of gross
sales.

2. A contract which provides for a flat
guaranteed rental which exceeds the permitted percentage of premium income is
void.

3. Any contract which binds an insurance
company, its agents or representatives, the fee for which exceeds the rental
fees permitted by this section, may not be renewed except for the rental fee
authorized by this section.

1. The annual statement required to be filed
pursuant to NRS 680A.270 must
contain exhibits and schedules that follow the specifications developed by the
National Association of Insurance Commissioners.

2. Information from the insurer’s annual
statement must be filed:

(a) Pursuant to the specifications adopted by the
National Association of Insurance Commissioners for filing information in an
electronic format;

(b) At the central office of the National
Association of Insurance Commissioners, 2301 McGee Street, Suite 800, Kansas
City, Missouri 64108-2662; and

(c) On or before March 1 of each year.

3. If a foreign or alien insurer files a
statement in an electronic format with the National Association of Insurance
Commissioners, that statement will be deemed to have been filed with the
Commissioner if the foreign or alien insurer has paid the applicable fees set
forth in NRS 680B.010.

4. The form of an annual statement required
by NRS 680A.270 to be filed
with the Commissioner must be the most recent adopted by the National
Association of Insurance Commissioners for the type of insurer reporting. Each
insurer filing the form shall follow the most recent instructions adopted by
the National Association of Insurance Commissioners for the type of annual
statement to be filed. These forms may be obtained from the National
Association of Insurance Commissioners, Publications Department, 2301 McGee
Street, Suite 800, Kansas City, Missouri 64108-2662, or at the Internet address
http://www.naic.org/, for the price of $200 each.

5. If necessary to determine a foreign or an
alien insurer’s financial condition, fulfillment of contractual obligations and
compliance with law, the Commissioner will require the foreign or alien insurer
to file a financial statement more frequently than annually. Such a statement
must be:

(a) Filed on the most current form adopted by the
National Association of Insurance Commissioners for the type of insurer
reporting;

(b) Completed in accordance with the instructions
accompanying that form; and

(c) Filed with the National Association of
Insurance Commissioners in an electronic format.

(a) Filed on the most current form adopted by the
National Association of Insurance Commissioners for the type of insurer
reporting;

(b) Completed in accordance with the instructions
accompanying that form; and

(c) Filed with the National Association of
Insurance Commissioners in an electronic format.

7. A domestic insurer that is not licensed
or authorized to do business in any state other than this State may apply for
an exemption from the requirement to complete the “Statement of Actuarial
Opinion” required by the Annual Statement Instructions of the National
Association of Insurance Commissioners as part of the domestic insurer’s annual
statement. The application must:

(a) Be in writing.

(b) Be submitted by December 1 of the calendar year
which will be covered in the annual statement.

(c) Include an agreement and acknowledgment from
the domestic insurer that the Commissioner may use the services of an
independent actuary to certify losses and reserves for loss adjustment expenses
in relation to any examination of the domestic insurer pursuant to NRS 679B.230.

(d) Demonstrate that no significant changes and no
unusual or large claims have occurred or are expected to occur during the
calendar year which will be covered in the annual statement.

8. The Commissioner will grant an
application for an exemption made pursuant to subsection 7 if he or she
determines, upon review of the application, that having to file the “Statement
of Actuarial Opinion” would constitute a financial or organizational hardship
upon the domestic insurer or that the insurer has shown other good cause why it
should not have to file the statement. A domestic insurer which has been
granted an exemption pursuant to this subsection must file with its annual
statement a signed affidavit given by one of its officers under oath that
certifies the accuracy and adequacy of the reserves stated in its annual
statement.

9. A domestic insurer licensed only to sell
insurance for home protection but not licensed or authorized to do business in
any state other than this State is exempt from the requirement to complete the
“Statement of Actuarial Opinion” required by the Annual Statement
Instructions of the National Association of Insurance Commissioners as part
of the annual statement of the domestic insurer if the domestic insurer:

(a) Completes and submits with its annual statement
forms provided by the Commissioner for reporting information concerning claims;

(b) Complies with the requirements of paragraphs
(c) and (d) of subsection 7; and

(c) Submits with its annual statement a signed
affidavit given by one of its officers under oath that certifies the accuracy
and adequacy of the reserves stated in its annual statement.

10. A domestic insurer that is not licensed
or authorized to do business in any state other than this State is not required
to file information from its annual statement with the National Association of
Insurance Commissioners as required pursuant to subsection 2 if the written
premium of the domestic insurer for the year is less than $1,000,000.

NAC 680A.172Exemption from filing for certain qualified insurers; exceptions. (NRS 679B.130,
680A.265)For the
purposes of NRS 680A.265, the
Commissioner will find that good cause exists for the exemption of an insurer
from the requirements of NRS
680A.265 for the immediately preceding calendar year if, at the end of that
year, the insurer has direct premiums written in this State in an amount which
is less than $1,000,000 and has less than 1,000 policyholders, certificate
holders, enrollees, members or subscribers of directly written policies in the
United States unless:

1. The Commissioner makes a specific finding
that compliance by that insurer is necessary for the Commissioner to carry out
his or her statutory responsibilities; or

2. The insurer has assumed premiums pursuant
to contracts or treaties of reinsurance in an amount of $1,000,000 or more.

1. The purpose of NAC
680A.173 to 680A.211, inclusive, is to improve
the Division’s surveillance of the financial condition of insurers by
requiring:

(a) An annual audit of financial statements
reporting the financial position and the results of operations of insurers by
independent certified public accountants;

(b) The filing of a Communication of Internal
Control Related Matters Noted in an Audit; and

(c) The filing of a Management’s Report on Internal
Control Over Financial Reporting.

2. A foreign or alien insurer is exempt from
the provisions of NAC 680A.177 to 680A.197, inclusive, if:

(a) The insurer files an Audited Financial Report
with the insurance regulatory authority of another state pursuant to the
requirements of that state for filing an annual Audited Financial Report, if
such requirements have been found by the insurance regulatory authority to be
substantially similar to the requirements of this chapter; and

(b) Copies of the following that are filed with the
insurance regulatory authority of that state are filed with the Commissioner in
accordance with the filing dates specified in NAC
680A.177, 680A.191, 680A.193
and 680A.195, respectively:

(1) An annual Audited Financial Report;

(2) Notification of Adverse Financial
Condition;

(3) Communication of Internal Control Related
Matters Noted in an Audit; and

(4) An Accountant’s Letter of Qualifications.

3. A foreign or alien insurer required to
file the Management’s Report on Internal Control Over Financial Reporting with
the insurance regulatory authority of another state is exempt from filing in
this State if the other state has substantially similar reporting requirements
and if the report is filed with the insurance regulatory authority of the other
state within the time specified.

4. The provisions of NAC
680A.173 to 680A.211, inclusive, do not
prohibit, preclude or in any way limit the authority of the Commissioner to
order, conduct or perform examinations of an insurer pursuant to the provisions
of chapter 679B of NRS and the
regulations adopted pursuant thereto.

(Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009,
eff. 1-1-2010)

1. All insurers shall have an annual audit
conducted by an independent certified public accountant and, except as
otherwise provided in this subsection and subsection 2, shall file with the
Commissioner an annual Audited Financial Report for each year on or before June
1 of the following year. The Commissioner may require an insurer to file an
Audited Financial Report earlier than June 1 if the Commissioner provides at
least 90 days’ advance notice to the insurer.

2. Subject to the provisions of this
subsection and NRS 680A.265,
upon good cause shown by the insurer and its independent certified public
accountant, the Commissioner may grant one or more 30-day extensions of the
filing date. A request for an extension must be submitted in writing not less
than 10 days before the date on which the annual Audited Financial Report is to
be filed and must contain sufficient detail to permit the Commissioner to make
an informed decision with respect to the requested extension.

3. If an extension is granted pursuant to
subsection 2 for filing the Audited Financial Report, a 30-day extension of the
filing date of the Management’s Report on Internal Control Over Financial
Reporting is also granted.

4. Every insurer required to file an annual
Audited Financial Report pursuant to NAC 680A.173
to 680A.211, inclusive, shall designate a group of
individuals as its audit committee. The audit committee of an entity that
controls an insurer may be deemed the audit committee of the insurer for
purposes of NAC 680A.173 to 680A.211, inclusive.

(Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009,
eff. 1-1-2010)

1. The annual Audited Financial Report must
include a report of the financial position of the insurer as of the end of the
most recent calendar year and the results of the insurer’s operations, cash
flows and changes in capital and surplus for that year, in conformity with
statutory accounting practices prescribed, or otherwise permitted, by the
insurance regulatory authority of the state of domicile.

2. The annual Audited Financial Report must
include, without limitation:

(f) A summary of the ownership and relationships of
the insurer and each of its affiliated companies, if any; and

(g) All notes to financial statements required by
the appropriate annual statement instructions manual, as adopted by reference
in NAC 679B.033, and the Accounting
Practices and Procedures Manual, as adopted by reference in NAC 679B.033. The notes must include a
reconciliation of differences, if any, between the annual Audited Financial
Report filed with the Commissioner pursuant to NRS 680A.265 and the annual
statement filed with the Commissioner pursuant to NRS 680A.270, with a written
description of the nature of these differences.

3. The financial statements included in the
annual Audited Financial Report must be:

(a) Prepared in a form and using language and
groupings that are substantially similar to the relevant sections of the annual
statement of the insurer filed with the Commissioner pursuant to NRS 680A.270; and

(b) Comparative, presenting the amounts as of
December 31 of the most recent calendar year and the amounts as of December 31
of the immediately preceding calendar year, except that, in the first year in
which an insurer is required to file an annual Audited Financial Report, the
insurer may include only the data from the most recent year, omitting the
comparative data from the immediately preceding calendar year.

(Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009,
eff. 1-1-2010)

1. Each insurer required to file an annual
Audited Financial Report pursuant to NRS 680A.265 and the regulations
adopted pursuant thereto must, within 60 days after becoming subject to the
requirement, register with the Commissioner, in writing, the name and address
of the independent certified public accountant or accounting firm retained to
conduct the annual audit. An insurer who has not retained an independent
certified public accountant or accounting firm on or before January 1, 2010,
shall register with the Commissioner the name and address of the independent
certified public accountant or accounting firm retained by the insurer not less
than 6 months before the date when the first annual Audited Financial Report is
to be filed.

2. The insurer shall obtain from the
accountant, and shall file with the Commissioner, a copy of a letter stating
that the accountant is aware of the provisions of title 57 of NRS and the
regulations adopted pursuant thereto that relate to accounting and financial
matters and affirming that the accountant will express his or her opinion on
the financial statements in terms of their conformity to the statutory
accounting practices prescribed or otherwise permitted by the provisions of
title 57 of NRS and the regulations adopted pursuant thereto, specifying such
exceptions as he or she may believe appropriate.

3. Subject to the provisions of subsections
4 and 5, if an independent certified public accountant who was the accountant
for the most recent filing of the annual Audited Financial Report is dismissed
or resigns, the insurer shall, within 5 business days after the dismissal or
resignation, notify the Commissioner of the dismissal or resignation. Within 10
business days after notifying the Commissioner of the dismissal or resignation
of the accountant, the insurer shall file with the Commissioner a separate letter
stating whether, during the 24 months preceding the dismissal or resignation,
there were any disagreements between the former accountant and the insurer on
any matter of accounting principles or practices, financial statement
disclosure, or the scope or procedure of an audit and which disagreements, if
not resolved to the satisfaction of the former accountant, would have caused
the accountant to make a reference to the subject matter of the disagreement in
connection with his or her opinion filed with the annual Audited Financial
Report of the insurer.

4. The disagreements that are required to be
reported pursuant to subsection 3 include both those resolved and those not
resolved to the satisfaction of the former accountant. The disagreements
contemplated by this section are those disagreements that occur at the
decision-making level, including, without limitation, disagreements between
personnel of the insurer responsible for presentation of its financial
statements and personnel of the accounting firm responsible for rendering its
report.

5. The insurer shall request in writing that
the former accountant furnish a letter addressed to the insurer stating whether
the accountant agrees with the statements contained in the insurer’s letter
and, if not, stating the reasons he or she does not agree. The insurer shall
furnish the responsive letter from the former accountant to the Commissioner
together with its own letter.

(Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009,
eff. 1-1-2010)

1. The Commissioner will not recognize a
person or firm as a qualified independent certified public accountant if the
person or firm:

(a) Is not in good standing with the American
Institute of Certified Public Accountants and in all states in which the
accountant is licensed to practice, or, for an insurer domiciled in Canada or
Great Britain, is not a chartered accountant or accounting firm; or

(b) Has either directly or indirectly entered into
an agreement of indemnity or release from liability, with respect to the audit
of the insurer, where the intent or effect is to shift or limit in any manner
the potential liability of the person or firm for failure to adhere to
applicable auditing or professional standards, whether or not resulting in part
from knowing of other misrepresentations made by the insurer or its
representatives.

2. The Commissioner will recognize an
independent certified public accountant as qualified if the accountant conforms
to the standards contained in the AICPA Code of Professional Conduct and
Bylaws. As used in this subsection, “AICPA” means the American Institute of
Certified Public Accountants.

3. A qualified independent certified public
accountant may enter into an agreement with an insurer to have disputes
relating to the annual Audited Financial Report that has been certified by the
independent certified public accountant resolved by mediation or arbitration.
If a delinquency proceeding has commenced against an insurer pursuant to chapter 696B of NRS, any such mediation
or arbitration provision is enforceable at the option of the statutory
successor in interest to the insurer.

4. Beginning with the reporting period
beginning on January 1, 2010, and subject to the provisions of subsections 5, 6
and 7, the lead or coordinating audit partner having primary responsibility for
the audit may not act in that capacity for more than 5 consecutive years,
beginning when the insurer registers the independent certified public
accountant with the Commissioner pursuant to NAC
680A.183. The independent certified public accountant shall be disqualified
from acting in that or a similar capacity for the same company or its insurance
subsidiaries or affiliates for a period of 5 consecutive years.

5. An insurer may apply to the Commissioner
for permission for an independent certified public accountant to continue in
his or her capacity in rendering the annual Audited Financial Report of the
insurer for more than 5 consecutive years or to return to a position which
would be responsible for rendering an annual Audited Financial Report for the
insurer and its subsidiary or affiliate in less than 5 years, upon a showing of
unusual circumstances. The application must be made at least 30 days before the
end of the calendar year.

6. The Commissioner will consider, without
limitation, the following factors in determining whether to grant an exception
pursuant to subsection 5:

(a) Whether the independent certified public
accountant is an accounting firm, the number of partners within the accounting
firm and the expertise of those partners;

(b) The number of insurers who are clients of the
accounting firm;

(c) The premium volume of the insurer; and

(d) The number of jurisdictions in which the
insurer transacts business.

7. The insurer shall file with its annual
statement filing the approval from the Commissioner for the exception granted
pursuant to subsection 5 with the states in which it is licensed or doing
business and with the National Association of Insurance Commissioners. If the
nondomestic state accepts electronic filing with the National Association of
Insurance Commissioners, the insurer shall file the approval in an electronic
format acceptable to the National Association of Insurance Commissioners.

8. The Commissioner will not recognize as a
qualified independent certified public accountant, or accept an annual Audited
Financial Report prepared in whole or in part by, a natural person who:

(a) Has been convicted of fraud, bribery, a
violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C.
§§ 1961 to 1968, inclusive, or any dishonest conduct or practices under federal
or state law;

(b) Has been found to have violated any provision
of title 57 of NRS or any regulation adopted pursuant thereto with respect to
any previous reports submitted pursuant to NRS 680A.265 and the regulations
adopted pursuant thereto; or

(c) Has demonstrated a pattern or practice of
failing to detect or disclose material information in any previous annual
Audited Financial Report filed pursuant to NRS 680A.265 and the regulations
adopted pursuant thereto.

9. The Commissioner may, pursuant to the
provisions of NAC 679B.161 to 679B.480, inclusive, hold a hearing to
determine whether an independent certified public accountant is qualified for
the purposes of NRS 680A.265
and the regulations adopted pursuant thereto. If, based on the evidence
presented, the Commissioner determines that the accountant is not qualified for
purposes of expressing his or her opinion on the financial statements in the
annual Audited Financial Report made pursuant to NRS 680A.265 and the regulations
adopted pursuant thereto, the Commissioner may require the insurer to replace
the accountant with an independent certified public accountant who is
qualified.

10. Except as otherwise provided in
subsection 12, the Commissioner will not recognize as a qualified independent
certified public accountant, or accept an annual Audited Financial Report
prepared in whole or in part by, an accountant who provides to an insurer,
contemporaneously with the audit, any of the following nonaudit services:

(a) Bookkeeping or other services relating to the
accounting records or financial statements of the insurer.

(d) Actuarially oriented advisory services
involving the determination of amounts recorded in the financial statements.
The accountant may assist an insurer in understanding the methods, assumptions
and inputs used in the determination of amounts recorded in the financial
statement only if it is reasonable to conclude that the services provided will
not be subject to audit procedures during an audit of the insurer’s financial
statements. An accountant’s actuary may also issue an actuarial opinion or
certification of an insurer’s reserves if the following conditions have been
met:

(1) Neither the accountant nor the
accountant’s actuary have performed any management functions or made any
management decisions;

(2) The insurer has competent personnel or
engages a competent third-party actuary to estimate the reserves for which
management takes responsibility; and

(3) The accountant’s actuary tests the
reasonableness of the reserves after the insurer’s management has determined
the amount of the reserves.

(i) Any other services that the Commissioner
determines are impermissible.

11. With respect to services provided by a
qualified independent certified public accountant, the principles of
independence are based on, without limitation, the following three basic
principles and any violation of these principles would impair the accountant’s
independence:

(a) The accountant may not function in the role of
management;

(b) The accountant may not audit his or her own
work; and

(c) The accountant may not serve in an advocacy
role for the insurer.

12. An insurer having direct written and
assumed premiums of less than $100 million in any calendar year may request an
exemption from the provisions of subsection 10. To make such a request the
insurer must file with the Commissioner a written statement discussing the
reasons why the insurer should be so exempt. If the Commissioner finds, upon
review of this statement, that compliance with NAC
680A.173 to 680A.211, inclusive, would
constitute a financial or organizational hardship upon the insurer, the
Commissioner will grant the exemption.

13. A qualified independent certified public
accountant who performs the audit may engage in other nonaudit services,
including tax services, that are not described in subsection 10 or that do not
conflict with subsection 10 only if the activity is approved in advance by the
audit committee, in accordance with subsection 14.

14. All auditing services and nonaudit
services provided to an insurer by the qualified independent certified public
accountant of the insurer must be preapproved by the audit committee. The
preapproval requirement is waived with respect to nonaudit services if:

(a) The insurer is a SOX Compliant Entity or a
direct or indirect wholly owned subsidiary of a SOX Compliant Entity; or

(b) The following conditions are met:

(1) The aggregate amount of all such nonaudit
services provided to the insurer constitutes not more than 5 percent of the
total amount of fees paid by the insurer to its qualified independent certified
public accountant during the fiscal year in which the nonaudit services are
provided;

(2) The services were not recognized by the
insurer at the time of the engagement to be nonaudit services; and

(3) The services are promptly brought to the
attention of the audit committee and, before completion of the audit, are
approved by the audit committee or by one or more members of the audit
committee who are the members of the board of directors to whom authority to
grant such approvals has been delegated by the audit committee.

15. The audit committee may delegate to one
or more designated members of the audit committee the authority to grant the
preapprovals required by subsection 14. The decisions of any member to whom
this authority is delegated must be presented to the full audit committee at
each of its scheduled meetings.

16. Except as otherwise provided in
subsection 17, the Commissioner will not recognize an independent certified
public accountant as qualified for a particular insurer if a member of the
board, president, chief executive officer, controller, chief financial officer,
chief accounting officer or any person serving in an equivalent position for
that insurer was employed by the independent certified public accountant and
participated in the audit of that insurer during the 1-year period preceding
the date on which the most current statutory opinion is due. This section only
applies to partners and senior managers involved in the audit.

17. The Commissioner may, upon a written
application by the insurer, grant an exception from the provisions of
subsection 16 on the basis of unusual circumstances.

18. The insurer shall file, with its annual
statement filing, a copy of the approval of the exception granted pursuant to
the provisions of subsection 17 with any state in which it is licensed or doing
business and with the National Association of Insurance Commissioners. If the
nondomestic state accepts electronic filing with the National Association of
Insurance Commissioners, the insurer shall file the approval in an electronic
format acceptable to the National Association of Insurance Commissioners.

(Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009,
eff. 1-1-2010)

1. An insurer may apply in writing to the
Commissioner for approval to file audited consolidated or combined financial
statements in lieu of a separate annual Audited Financial Report if the
insurer:

(a) Is part of a group of insurance companies that
uses a pooling or 100 percent reinsurance agreement that affects the solvency
and integrity of the insurer’s reserves; and

(b) Cedes all of its direct and assumed business to
the pool.

2. If the Commissioner approves the
consolidated or combined filing, the insurer shall file with its report a
columnar consolidating or combining worksheet as follows:

(a) The amounts shown on the consolidated or
combined annual Audited Financial Report must be shown on the worksheet;

(b) The amounts for each insurer subject to the
consolidated or combined annual Audited Financial Report filed pursuant to NRS 680A.265 and the regulations
adopted pursuant thereto must be stated separately;

(c) The amounts from the operations of the insurer
which are not related to insurance must be shown on the worksheet on a combined
or individual basis;

(d) Explanations of entries which are consolidated
or eliminated must be included; and

(e) A reconciliation must be included of any
differences between the amount shown on the column for the individual insurer
and the comparable amount shown on the annual statement of the insurers.

(Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009,
eff. 1-1-2010)

1. The insurer’s financial statements must
be examined by an independent certified public accountant for the purposes of NRS 680A.265 and the regulations
adopted pursuant thereto. The audit of the insurer’s financial statements must
be conducted in accordance with generally accepted auditing standards. In
accordance with AU Section 319, Consideration of Internal Control in a
Financial Statement Audit, included in the AICPA Professional Standards,
as adopted by reference in subsection 2, the independent certified public
accountant must obtain an understanding of the insurer’s internal control
sufficient to plan the audit. If required by AU Section 319, for those insurers
required to file a Management’s Report on Internal Control Over Financial
Reporting pursuant to NAC 680A.203, the
independent certified public accountant shall consider the most recently
available report in planning and performing the audit of the financial
statements. Consideration should be given to the procedures set forth in the Financial
Condition Examiners Handbook, adopted by reference in NAC 679B.033, as the independent
certified public accountant deems necessary.

2. The AICPA Professional Standards
are hereby adopted by reference and may be obtained by mail from the American
Institute of Certified Public Accountants, Member Service Center, Order
Processing, 220 Leigh Farm Road, Durham, North Carolina 27707-8110 or by
ordering via telephone at (888) 777-7077, by facsimile at (800) 362-5066 or on
the Internet at http://www.cpa2biz.com at the price of $135 for members
of the American Institute of Certified Public Accountants and $168.75 for
nonmembers.

(Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009,
eff. 1-1-2010)

1. An insurer required to furnish an annual
Audited Financial Report shall require the independent certified public accountant
to report, in writing and within 5 business days, to the board of directors or
its audit committee each determination by the independent certified public
accountant that the insurer:

(a) Has materially misstated its financial
condition as reported to the Commissioner as of the balance sheet date
currently under audit; or

(b) As of that date, does not meet the minimum
capital and surplus requirements as set forth in this chapter and chapter 680A of NRS.

2. An insurer who receives a report from its
independent certified public accountant pursuant to this section shall, within
5 business days after receipt of the report:

(a) Forward a copy of the report to the
Commissioner; and

(b) Provide evidence to the independent certified
public accountant making the report that the insurer has forwarded a copy of
the report to the Commissioner.

3. If the independent certified public
accountant fails to receive the evidence within the required period, the
independent certified public accountant shall furnish to the Commissioner a
copy of its report within the next 5 business days.

4. An independent certified public
accountant shall not be liable in any manner to any person for any statement
made in connection with subsection 1, 2 or 3 if the statement is made in good
faith in compliance with this section.

5. If, after the date on which the Audited
Financial Report has been filed pursuant to NRS 680A.265 and the regulations
adopted pursuant thereto, the independent certified public accountant becomes
aware of facts that might have affected his or her report, the accountant shall
take such action as prescribed in AU Section 561, Subsequent Discovery of Facts
Existing at the Date of the Auditor’s Report, of the AICPA Professional
Standards, adopted by reference in NAC 680A.189.

(Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009,
eff. 1-1-2010)

1. In addition to the annual Audited
Financial Report, each insurer shall furnish the Commissioner with a completed
Communication of Internal Control Related Matters Noted in an Audit as to any
unremediated material weaknesses in its internal control over financial
reporting noted during the audit.

2. The report required pursuant to the
provisions of this section must be prepared by the independent certified public
accountant within 60 days after the date on which the annual Audited Financial
Report is filed with the Commissioner and must contain a description of any
unremediated material weakness in the insurer’s internal control over financial
reporting noted during the audit of the insurer’s financial statements by the
accountant, as of December 31 of the most recent calendar year.

3. If there are no unremediated material
weaknesses noted, the report to the Commissioner must state that there are no
unremediated material weaknesses noted.

4. The insurer must provide a description of
any remedial actions taken or proposed to be taken to correct any unremediated
material weaknesses, if the actions taken by the insurer are not described in
the accountant’s report.

5. As used in this section, “unremediated
material weakness” has the meaning ascribed to it in the Statements of Auditing
Standards No. 112, Communicating Internal Control Related Matters Identified in
an Audit, included in the AICPA Professional Standards, adopted by
reference in NAC 680A.189.

(Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009,
eff. 1-1-2010)

NAC 680A.195Required letter by accountant. (NRS 679B.130, 680A.265, 680A.270)An
independent certified public accountant shall furnish the insurer in connection
with, and for inclusion in, the filing of the annual Audited Financial Report,
a letter which states each of the following:

1. That the accountant is independent with
respect to the insurer and conforms to the standards of his or her profession
as contained in the AICPA Code of Professional Conduct and Bylaws, the
pronouncements of the American Institute of Certified Public Accountants and
the Rules of Professional Conduct of the Nevada State Board of Accountancy.

2. The background and experience of the
accountant in general, the experience of the staff of the accountant in audits
of insurers, and whether each member of that staff which will audit the insurer
is an independent certified public accountant. The provisions of NAC 680A.173 to 680A.211,
inclusive, will not be construed as prohibiting the accountant from using such
staff as he or she deems necessary if such use of staff is consistent with the
standards prescribed by generally accepted auditing standards.

3. That the accountant understands that the
annual Audited Financial Report and his or her opinion thereon will be filed
pursuant to NRS 680A.265 and
the regulations adopted pursuant thereto, and that the Commissioner will be
relying on this information to monitor and regulate the financial position of
the insurers.

4. That the accountant consents to the
requirements of NAC 680A.197 and that the
accountant consents and agrees to make available for review by the
Commissioner, or the Commissioner’s designee or appointed agent, the workpapers
as defined in NAC 680A.197.

5. That the accountant is properly licensed,
certified or chartered by the appropriate licensing authority in the state or
country in which the accountant is licensed, certified or chartered and that
the accountant is a member in good standing of the American Institute of
Certified Public Accountants.

6. That the accountant is in compliance with
the requirements for a qualified independent certified public accountant as set
forth in NAC 680A.183.

(Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009,
eff. 1-1-2010)

1. Every insurer required to file an annual
Audited Financial Report pursuant to NRS 680A.265 and the regulations
adopted pursuant thereto shall require the independent certified public accountant
to make available for review by the Commissioner, or his or her designated
agent, all workpapers prepared in the conduct of the accountant’s audit and any
communications related to the audit between the accountant and the insurer, at
the offices of the insurer, the Division, or at any other reasonable place
designated by the Commissioner. The insurer shall require that the independent
certified public accountant retain the workpapers and communications relating
to the audit until the Division has filed a report on the examination covering
the period of the audit but not longer than 7 years from the date of the
Audited Financial Report.

2. To complete the periodic review of the
workpapers of the independent certified public accountant pertaining to its
audit of the financial statements, the examiners of the Division may make and
retain a photocopy of any pertinent workpapers relating to the audit. All
workpapers and communications obtained during the course of such reviews must
be afforded the same confidentiality as other examination workpapers generated
by the Division.

3. As used in this section, “workpapers”
means the records kept by an independent certified public accountant of the
procedure followed, the test performed, the information obtained and the
conclusion reached pertinent to the accountant’s audit of the financial
statements of an insurer. The term includes, without limitation, audit planning
documentation, work programs, analyses, memoranda, letters of confirmation and
representation, abstracts of company documents, and schedules or commentaries
prepared or obtained by the independent certified public accountant in the
course of his or her audit of the financial statements of an insurer and which
support the accountant’s opinion.

(Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009,
eff. 1-1-2010)

1. The provisions of this section do not
apply to a foreign or alien insurer licensed in this State or an insurer that
is a SOX Compliant Entity or a direct or indirect wholly owned subsidiary of a
SOX Compliant Entity.

2. The audit committee shall be directly
responsible for the appointment, compensation and oversight of the work of any
accountant for the purpose of preparing or issuing the Audited Financial Report
or related work pursuant to NAC 680A.173 to 680A.211, inclusive. Any dispute between the
management of the insurer and the accountant during the course of the audit
regarding the financial reporting for the preparation or issuance of the annual
Audited Financial Report of the insurer must be resolved by the audit committee.
Each accountant shall report directly to the audit committee.

3. Each member of the audit committee must
be a member of the board of directors of the insurer or a member of the board
of directors of an entity that controls a group of insurers. If an audit
committee is not designated by the insurer, the insurer’s entire board of
directors shall constitute the audit committee.

4. Except as otherwise provided in this
subsection, to be considered independent for the purposes of this section, a
member of the audit committee may not, other than in his or her capacity as a
member of the audit committee, the board of directors, or any other board or
committee, accept any consulting, advisory or other compensatory fee from the
entity or be an affiliated person of the entity or any subsidiary thereof. If,
by law, participation on the board of directors by otherwise nonindependent
members is required, such members may participate in the audit committee and be
designated as independent for audit committee purposes, unless they are an
officer or employee of the insurer or one of its affiliates. The audit
committee of any entity that controls a group of insurers may be deemed to be
the audit committee for one or more of these controlled insurers solely for the
purposes of NAC 680A.173 to 680A.211, inclusive, at the election of the
controlling person.

5. If a member of the audit committee ceases
to be independent for reasons outside the member’s reasonable control, the
insurer shall provide notice to the Commissioner, and the member may remain an
audit committee member of the insurer until the earlier of the next annual
meeting of the insurer or 1 year after the occurrence of the event that caused
the member to be no longer independent.

6. To exercise the election of the
controlling person to designate the audit committee for purposes of NAC 680A.173 to 680A.211,
inclusive, the ultimate controlling person shall provide written notice to the
insurance regulatory authority of other affected states. Notification must be
made timely before the issuance of the Audited Financial Report and include a
description of the basis for the election. The election may be changed through
notice to the Commissioner by the insurer, which must include a description of
the basis for the change. The election remains in effect for perpetuity or
until rescinded.

7. The audit committee shall require the
independent certified public accountant that performs any audit for an insurer
as required by NAC 680A.173 to 680A.211, inclusive, to timely report to the audit
committee in accordance with the requirements of Statements of Auditing
Standards No. 61, Communication with Audit Committees, included in the AICPA
Professional Standards, as adopted by reference in NAC
680A.189, including, without limitation:

(b) All material alternative treatments of
financial information within statutory accounting principles that have been
discussed with the management of the insurer, ramifications of the use of the
alternative disclosures and treatments, and the treatment preferred by the
accountant; and

(c) Any other material written communications
between the independent certified public accountant and the management of the
insurer, including any management letter or schedule of unadjusted differences.

8. If an insurer is a member of an insurance
holding company system, the reports required by subsection 7 may be provided to
the audit committee on an aggregate basis for the insurers in the holding
company system if the independent certified accountant identifies to the audit
committee any substantial differences among insurers in the system.

9. The proportion of independent audit
committee members must meet or exceed the following criteria:

Previous
Calendar Year Direct Written and Assumed Premiums

$0
– 300,000,000

$300,000,001
– 500,000,000

Over
$500,000,000

No
minimum requirements.

Majority
(50 percent or more) of members shall be independent.

Supermajority
(75 percent or more) of members shall be independent.

10. The Commissioner may require the board
of directors of an insurer or a group of insurers to enact improvements to the
independence of the audit committee membership, if:

(a) The insurer is subject to filing the Risk-Based
Capital (RBC) Report and the insurer has identified a risk-based capital action
level event pursuant to the provisions of NAC
681B.400 to 681B.595, inclusive;

(b) The insurer meets one or more of the standards
of an insurer deemed to be in hazardous financial condition identified pursuant
to NRS 680A.205 and NAC 680A.220 to 680A.226,
inclusive; or

(c) The insurer otherwise exhibits qualities of a
troubled insurer.

11. All insurers with less than $500 million
in direct written and assumed premiums for the previous calendar year are
encouraged to structure their audit committees with at least a supermajority of
independent audit committee members.

12. An insurer with direct written and
assumed premiums, excluding premiums reinsured with the Federal Crop Insurance
Corporation and the National Flood Insurance Program, of less than $500 million
may apply in writing to the Commissioner for a waiver from the requirements of
this section based on hardship. If the waiver is granted, the insurer shall
file, with its annual statement filing, the approval for the waiver with the
states in which it is licensed or doing business and with the National
Association of Insurance Commissioners. If the nondomestic state accepts
electronic filing with the National Association of Insurance Commissioners, the
insurer shall file the approval in an electronic format acceptable to the
National Association of Insurance Commissioners.

13. The requirements of this section become effective
on January 1, 2010, except that:

(a) An insurer or group of insurers that is not
required to have independent audit committee members or only a majority of
independent audit committee members because the total written and assumed
premium is below the threshold and subsequently becomes subject to one of the
independence requirements due to changes in premiums must comply with the
independence requirements within 1 year after the year the threshold is
exceeded; and

(b) An insurer that becomes subject to one of the
independence requirements because of a business combination must comply with
the independence requirements within 1 calendar year after the date of
acquisition or combination.

(Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009,
eff. 1-1-2010)

1. No director or officer of an insurer
shall, directly or indirectly:

(a) Make or cause to be made a materially false or
misleading statement to an accountant in connection with any audit, review or
communication required under NAC 680A.173 to 680A.211, inclusive; or

(b) In light of the circumstances under which the
statements were made, omit to state, or cause another person to omit to state,
any material fact necessary for the annual Audited Financial Report, in order
to make statements made to be misleading to an accountant in connection with
any audit, review or communication required by NAC
680A.173 to 680A.211, inclusive.

2. No director or officer of an insurer, or
any other person acting under the direction thereof, shall directly or
indirectly take any action to coerce, manipulate, mislead or fraudulently
influence any accountant engaged in the performance of an audit pursuant to NAC 680A.173 to 680A.211,
inclusive, if that person knew or should have known that the action, if
successful, could result in rendering the insurer’s financial statements
materially misleading. Such actions include, without limitation, actions taken
at any time with respect to the professional engagement period to coerce,
manipulate, mislead or fraudulently influence an accountant:

(a) To issue or reissue an annual Audited Financial
Report on an insurer’s financial statements that may be materially misleading,
if not warranted by the circumstances because of material violations of
statutory accounting principles prescribed by the Commissioner, generally
accepted auditing standards, or other professional or regulatory standards;

(b) Not to perform an audit, review or other
procedure required by generally accepted auditing standards or other
professional standards;

(c) Not to withdraw an issued report; or

(d) Not to communicate matters to an insurer’s
audit committee.

(Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009,
eff. 1-1-2010)

NAC 680A.203Conditions under which Management’s Report on Internal Control
Over Financial Reporting must be filed. (NRS 679B.130, 680A.265, 680A.270)

1. Except as otherwise provided in
subsections 2 and 3, beginning with the reporting period ending December 31,
2010, and each year thereafter, every insurer required to file an Audited
Financial Report pursuant to NRS
680A.265 and the regulations adopted pursuant thereto that has annual
direct written and assumed premiums of $500 million or more, excluding premiums
reinsured with the Federal Crop Insurance Corporation and the National Flood
Insurance Program, must prepare a report of the insurer’s or group of insurers’
internal control over financial reporting. The Management’s Report on Internal
Control Over Financial Reporting must be filed with the Commissioner along with
the Communication of Internal Control Related Matters Noted in an Audit report
described in NAC 680A.193. The Management’s Report
on Internal Control Over Financial Reporting must be current as of the previous
December 31.

2. An insurer or a group of insurers:

(a) That is not required to file an Audited
Financial Report because the total written premium of the insurer or group of
insurers is below the threshold and subsequently becomes subject to the
reporting requirements shall file the Management’s Report on Internal Control
Over Financial Reporting within 2 years after the year in which the threshold
is exceeded; or

(b) That is acquired in a business combination
shall file the Management’s Report on Internal Control Over Financial Reporting
within 2 calendar years after the date of acquisition or combination.

3. In addition to an insurer described in
subsection 1, the Commissioner may require an insurer to file the Management’s
Report on Internal Control Over Financial Reporting if:

(a) The insurer is subject to the Risk-Based
Capital Report pursuant to the provisions of NRS 681B.290 and the insurer has
identified a risk-based capital action level event that requires the insurer to
file a corrective action plan pursuant to the provisions of NAC 681B.400 to 681B.595, inclusive;

(b) The insurer meets one or more of the standards
of an insurer deemed to be in hazardous financial condition identified pursuant
to the provisions of NRS 680A.205
and NAC 680A.220 to 680A.226,
inclusive; or

(c) The insurer otherwise exhibits qualities of a
troubled insurer.

4. An insurer or group of insurers that is:

(a) Directly subject to the provisions of Section
404;

(b) A member of a holding company system whose
parent is directly subject to Section 404;

(c) Not directly subject to Section 404 but a SOX
Compliant Entity; or

(d) A member of a holding company system whose
parent is not directly subject to Section 404 but is a SOX Compliant Entity,

Ê may file its
or its parent’s Section 404 Report and an addendum in satisfaction of this
section’s requirement, if those internal controls of the insurer or group of
insurers having a material impact on the preparation of the insurer’s or group
of insurers’ statutory Audited Financial Reports were included in the scope of
the Section 404 Report. The addendum must be a positive statement by the
management of the insurer that there are no material processes with respect to
the preparation of the insurer’s or group of insurers’ statutory Audited
Financial Reports excluded from the Section 404 Report.

5. If there are internal controls of the
insurer or group of insurers that have a material impact on the preparation of
the insurer’s or group of insurers’ statutory Audited Financial Reports and
those internal controls were not included in the scope of the Section 404
Report, the insurer or group of insurers may file:

(a) The Management’s Report on Internal Control
Over Financial Reporting; or

(b) The Section 404 Report and the Management’s
Report on Internal Control Over Financial Reporting for those internal controls
that have a material impact on the preparation of the insurer’s or group of
insurers’ statutory Audited Financial Reports not covered by the Section 404
Report.

6. A Management’s Report on Internal Control
Over Financial Reporting must include each of the following:

(a) A statement that the management of the insurer
is responsible for establishing and maintaining adequate internal control over
financial reporting.

(b) A statement that the management of the insurer
has established internal control over financial reporting and an assertion, to
the best of the management’s knowledge and belief after diligent inquiry, as to
whether its internal control over financial reporting is effective to provide
reasonable assurance regarding the reliability of financial statements in
accordance with statutory accounting principles.

(c) A statement that briefly describes the approach
or processes by which the management of the insurer evaluated the effectiveness
of its internal control over financial reporting.

(d) A statement that briefly describes the scope of
work that is included and whether any internal controls were excluded.

(e) A statement disclosing any unremediated
material weaknesses in the internal control over financial reporting identified
by the management of the insurer as of the previous December 31. The management
of the insurer may not conclude that the internal control over financial
reporting is effective to provide reasonable assurance regarding the
reliability of financial statements in accordance with statutory accounting
principles if there are one or more unremediated material weaknesses in its
internal control over financial reporting.

(f) A statement regarding the inherent limitations
of internal control systems.

(g) Signatures of the chief executive officer and
the chief financial officer or, in the absence of one of these positions,
signatures of two other principal officers or directors who have an equivalent
position or title.

7. The management of the insurer shall
document and make available upon examination of its financial condition the
basis upon which its assertions are made, as required pursuant to subsection 6.
Such basis may include its review, monitoring and testing of internal controls
undertaken in the normal course of its activities.

8. The management of the insurer has discretion
as to the nature of the internal control framework used, and the nature and
extent of documentation, in order to make its assertion in a cost-effective
manner and, as such, may include assembly of or reference to existing
documentation.

9. The Management’s Report on Internal
Control Over Financial Reporting and any documentation provided in support
thereof during the course of a financial condition examination must be kept
confidential by the Division.

10. As used in this section, “unremediated material
weakness” has the meaning ascribed to it in the Statements of Auditing
Standards No. 112, Communicating Internal Control Related Matters Identified in
an Audit, included in the AICPA Professional Standards, adopted by
reference in NAC 680A.189.

(Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009,
eff. 1-1-2010)

NAC 680A.205Exemption to be granted or denied by Commissioner; hearing. (NRS 679B.130,
680A.265, 680A.270)Upon
written application of an insurer or group of insurers, the Commissioner may
grant an exemption from compliance with any or all provisions of NAC 680A.173 to 680A.211,
inclusive, if the Commissioner finds, upon review of the application, that
compliance with any or all of the provisions of NAC
680A.173 to 680A.211, inclusive, would
constitute a financial or organizational hardship upon the insurer or group of
insurers. An exemption may be granted at any time and from time to time for a
specified period or periods. Within 10 days after a denial of an insurer’s
written request for an exemption from any or all provisions of NAC 680A.173 to 680A.211,
inclusive, the insurer may request in writing a hearing on its application for
an exemption. The hearing must be held in accordance with the provisions of NAC 679B.161 to 679B.480, inclusive.

(Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009,
eff. 1-1-2010)

1. Domestic insurers retaining a qualified
independent certified public accountant on December 31, 2009, shall comply with
the provisions of NAC 680A.173 to 680A.211, inclusive, for the year ending December 31,
2009, and each year thereafter unless the Commissioner permits otherwise.

2. Domestic insurers not retaining a
qualified independent certified public accountant on December 31, 2009, shall
meet the following schedule for compliance unless the Commissioner permits otherwise:

(a) As of December 31, 2009, file with the
Commissioner an Audited Financial Report; and

(b) For the year ending December 31, 2010, and each
year thereafter, file with the Commissioner all reports and communication
required by NAC 680A.173 to 680A.211, inclusive.

3. Foreign and alien insurers shall comply
with the provisions of NAC 680A.173 to 680A.211, inclusive, for the year ending December 31,
2010, and each year thereafter, unless the Commissioner permits otherwise.

(Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009,
eff. 1-1-2010)

1. In the case of Canadian and British
insurers, the annual Audited Financial Report is defined as the Annual
Statement of Total Business on the form filed by such companies with their
supervision authority duly audited by an independent chartered accountant.

2. For an insurer domiciled in Canada or
Great Britain, the letter required by NAC 680A.181
must state that the accountant is aware of the requirements relating to the
annual Audited Financial Report filed with the Commissioner pursuant to NRS 680A.265 and the regulations
adopted pursuant thereto and must affirm that the opinion expressed is in
conformity with those requirements.

(Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009,
eff. 1-1-2010)

(Added to NAC by Comm’r of Insurance by R205-08, 11-25-2009,
eff. 1-1-2010)

DETERMINATION OF HAZARDOUS FINANCIAL CONDITION

NAC 680A.220Commissioner to determine if continued operation of insurer is
hazardous; considerations for determination. (NRS 679B.130, 680A.205)

1. The Commissioner will consider the
following to determine whether the continued operation of an insurer
transacting the business of insurance in this State is hazardous to the general
public or the policyholders or creditors of the insurer:

(a) Adverse findings concerning the insurer’s
financial condition or market conduct as reported or summarized in examination
reports, audit reports and actuarial opinions, reports, summaries or memoranda
which the Commissioner determines to be material.

(b) Financial solvency analysis tools and
information and reports concerning the insurer from the Insurance Regulatory
Information System of the National Association of Insurance Commissioners.

(c) Whether the insurer has made adequate provision
in accordance with accepted actuarial standards of practice for the anticipated
cash flows required by policies, contractual obligations and related expenses
of the insurer. In making that determination, the Commissioner will consider
the assets held by the insurer with respect to reserves and related actuarial
items, including, without limitation, the investment earnings on such assets
and the financial consideration anticipated to be received and retained under such
policies and contracts.

(d) If the insurer has reinsurance, the ability of
the assuming reinsurer to perform and whether the insurer’s reinsurance program
provides sufficient protection for the insurer’s remaining surplus after taking
into account the insurer’s cash flow, the classes of insurance written by the
insurer and the financial condition of the assuming reinsurer.

(e) Whether the insurer’s operating loss in the
most previous 12-month period, or such shorter period as the Commissioner deems
appropriate, is greater than 50 percent of the insurer’s surplus which is in
excess of the statutory minimum surplus required for that insurer pursuant to NRS 680A.120.

(f) Whether the insurer’s operating loss, excluding
net capital gain, in the most previous 12-month period, or such shorter period
as the Commissioner deems appropriate, is greater than 20 percent of the
insurer’s surplus which is in excess of the statutory minimum surplus required
for that insurer pursuant to NRS
680A.120.

(g) Whether any entity within the system of the
insurance holding company, reinsurer or obligor of the insurer is insolvent,
threatened with insolvency or delinquent in payment of its monetary or other
obligations and, in the opinion of the Commissioner, such insolvency or
delinquency may affect the solvency of the insurer.

(h) Whether the contingent liabilities, pledges or
guaranties of the insurer, either individually or collectively, involve a total
amount which, in the opinion of the Commissioner, may affect the solvency of
the insurer.

(i) Whether any person who directly or indirectly
controls the insurer is delinquent in the transmission to, or payment of, a net
premium to the insurer.

(j) The age and collectibility of the accounts
receivable of the insurer.

(k) Whether any person involved in the management
of the insurer fails to possess and demonstrate the competence, fitness and reputation
deemed necessary by the Commissioner to serve the insurer in such a position.

(l) Whether the management of the insurer has
failed to respond to any inquiry concerning the condition of the insurer, or
has provided false or misleading information in response to such an inquiry.

(m) Whether the insurer has failed to meet
financial and holding company filing requirements, unless the insurer is
excused from such filing requirements for a reason deemed sufficient by the
Commissioner.

(n) Whether the management of the insurer has:

(1) Filed a false or misleading sworn
financial statement with the Division or the insurance regulatory authority of
any other state;

(2) Released a false or misleading statement
to a lending institution or the general public; or

(3) Made a false or misleading entry, or has
omitted an entry of a material amount, in the books of the insurer.

(o) Whether the insurer has grown so rapidly and to
such an extent that it lacks adequate financial and administrative capacity to meet
its obligations in a timely manner.

(p) Whether the insurer has experienced, or will
likely experience in the foreseeable future, problems with its cash flow or
liquidity.

(q) Whether the insurer has established reserves
that do not comply with the minimum standards prescribed by specific statute or
regulation, statutory accounting practices, sound actuarial principles and
actuarial standards of practice.

(r) Whether the insurer persistently maintains
inadequate reserves that results in an adverse effect on the general public or
on the policyholders or creditors of the insurer.

(s) Whether transactions among affiliates,
subsidiaries or controlling persons for which the insurer receives assets or
capital gains, or both, do not provide sufficient value, liquidity or diversity
to ensure the ability of the insurer to meet its outstanding obligations as the
obligations mature.

(t) Any other finding determined by the
Commissioner to be hazardous to the general public or to the policyholders or
creditors of the insurer.

2. As used in this section, unless the
context otherwise requires:

(a) “Management of the insurer” includes officers,
directors and any other person who directly or indirectly controls the
operation of the insurer.

(b) “Operating loss” includes, but is not limited
to:

(1) Net capital gain or loss;

(2) Change in assets which are not allowed as
assets in a determination of the financial condition of the insurer pursuant to
NRS 681B.020; and

(3) Cash dividends paid to shareholders.

(Added to NAC by Comm’r of Insurance, eff. 5-23-96; A
by R030-12, 9-14-2012)

NAC 680A.222Variables allowed in determination process. (NRS 679B.130,
680A.205)To
determine the financial condition of an insurer for the purposes of NAC 680A.220 to 680A.226,
inclusive, the Commissioner may, if he or she deems it appropriate:

1. Disregard any credit or amount receivable
resulting from the transactions of the insurer with a reinsurer which is
insolvent, impaired or otherwise subject to a delinquency proceeding;

2. Consistent with the Accounting
Practices and Procedures Manual of the National Association of Insurance
Commissioners, which has been adopted by reference in NAC 679B.033, make an appropriate
adjustment, including a disallowance, to the value of the insurer’s assets
which are attributable to the insurer’s investments in or transactions with any
parent, subsidiary or affiliate of the insurer;

3. Refuse to recognize the stated value of
the accounts receivable of the insurer if the ability of the insurer to collect
those accounts is highly speculative in view of the age of the account or the
financial condition of the debtor; or

4. Increase the insurer’s liability in an
amount equal to any contingent liability, pledge or guaranty not otherwise
included in the annual statements or financial statements of the insurer if
there is a substantial risk that the insurer will be called upon to meet the
liability, pledge or guaranty undertaken within the following 12-month period.

(Added to NAC by Comm’r of Insurance, eff. 5-23-96; A
by R030-12, 9-14-2012)

NAC 680A.224Actions that may be taken by Commissioner if insurer determined
to be in hazardous financial condition; exception. (NRS 679B.130,
680A.205)

1. If the Commissioner determines that the
continued operation of an insurer licensed to transact the business of
insurance in this State may be hazardous to the policyholders or creditors of
the insurer or the general public, the Commissioner will, if appropriate:

(a) Issue an order requiring the insurer to:

(1) Purchase reinsurance to reduce the total
amount of present or future liability for policy benefits.

(2) Reduce, suspend or limit the volume of
business being accepted or renewed by the insurer.

(3) Reduce the insurer’s expenses relating to
general insurance and commission by methods specified by the Commissioner.

(4) Increase its capital and surplus.

(5) Suspend or limit its declaration and
payment of dividends to the stockholders or policyholders of the insurer.

(6) File reports, in a form acceptable to the
Commissioner, concerning the market value of the assets of the insurer.

(7) Limit or withdraw from any of its
investments, or discontinue any part of its practices relating to investments,
to the extent deemed necessary by the Commissioner.

(8) Document the adequacy of its premium rates
in relation to the risks insured by the insurer.

(9) File with the Commissioner, in addition to
its regular annual statements, interim financial reports. The interim reports
must be on the appropriate form adopted by the National Association of
Insurance Commissioners, or in a format approved by the Commissioner.

(10) Correct any corporate governance
practices of the insurer which are deemed deficient by the Commissioner and
adopt and use corporate governance practices acceptable to the Commissioner.

(11) Provide a business plan to the
Commissioner.

(12) Unless prohibited by title 57 of NRS,
adjust rates for a product, other than a contract for life insurance, written
by the insurer that the Commissioner considers necessary to improve the
financial condition of the insurer.

(b) Take any other action deemed appropriate by the
Commissioner.

2. The provisions of subsection 1 do not
apply to a foreign insurer holding a certificate of authority to transact
insurance in this State, except as otherwise provided in NRS 680A.190 to 680A.220, inclusive.

(Added to NAC by Comm’r of Insurance, eff. 5-23-96; A
by R030-12, 9-14-2012)

NAC 680A.226Hearing for review; notice. (NRS 679B.130, 680A.205)An
insurer who is subject to an order of the Commissioner issued pursuant to NAC 680A.224 may request a hearing to review the
order. The notice of hearing will be served on the insurer in accordance with NRS 679B.320. The Commissioner
will hold a hearing requested pursuant to this section privately, unless the
insurer requests that the hearing be held as a public hearing.

(Added to NAC by Comm’r of Insurance, eff. 5-23-96)

NAC 680A.228Termination or suspension of business: Rewriting insurance. (NRS 679B.130)If a
company voluntarily withdraws from doing business in Nevada, has its license
suspended or revoked or requires replacement of insurance with other insurers,
the policies of that company may be rewritten for the unexpired term by other
admitted companies on a pro rata basis, at the original rate in effect when the
policy was first written. This section does not apply to life and health
insurance contracts.

1. Countersignature fees and commissions may
be negotiated for services required of a countersigning producer of insurance
appointed by an insurer.

2. A countersigning producer of insurance
appointed by an insurer shall maintain complete records of countersignature
transactions, including daily reports, correspondence, names of agents and
brokers who wrote the policies, and evidence of fees and commissions charged.

3. A countersigning producer of insurance
appointed by an insurer shall handle normal problems arising between agents and
customers, and is answerable to the Division for complaints and problems
relating to policies which he or she has countersigned.

4. All commissions on property and casualty
insurance which was sold by an agent or broker who is not licensed in Nevada
and which covers a risk located in Nevada must be paid to a countersigning
producer of insurance appointed by the applicable insurer.